RESEARCH CONTENT:
Slides demonstrating:
Whilst yields declined significantly at the beginning of August, rallies ran out of steam and most government bond market yields are now sitting on very important key supports. In the meantime, steepening momentum has increased, and long dated inflation expectations have dropped. Feels like new information is required for bond yields to break supports.
Crucially for FX, US yields have outperformed in bond yield declines, and so its unsurprising that bearish USD momentum is increasing for many FX crosses (GBP, EUR, AUD, CAD). If this momentum increases, then the next stage would be for these crosses to break out of long term trading ranges.
In commodities, keep an eye on a) Oil’s bearish momentum and the risk the 2 year trading range will get broken and 2) Gold’s bullish momentum, which has petered out as new highs were printed, warning of a divergence.
Fixed Income
August 10yr government bond yield declines hit key supports - bullish momentum has subsequently faded
Curve steepening gained momentum in August
US rates continued to outperform some cross market spreads
Strong performance of 5y5y inflation swaps and widening of USDEUR 10yr inflation breakeven spread
FX
USD Index remains in long term range
Increasing bullish momentum in GBP, EUR, AUD and CAD, which are testing key resistances against USD
USDCNY formed double top – improving bearish momentum is now testing key support
USDMXN trend reversal has led to continuing gains
Commodities
Decline in Gold’s bullish momentum as it makes new highs (Divergence)
Oil trading range (tight BBs), but worth monitoring whether bearish momentum is developing
LME in range, Food has rebounded off oversold levels (but without a trend reversal signal)
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